UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period ended September 30, 1995
----------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 0-15459
MCNEIL REAL ESTATE FUND XXIII, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 33-0139793
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13760 Noel Road, Suite 700, LB70, Dallas, Texas, 75240
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (214) 448-5800
-----------------------
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
MCNEIL REAL ESTATE FUND XXIII, L.P.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------ --------------------
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1995 1994
---------- ----------
ASSETS Real estate investments:
Land..................................................... $ 239,966 $ 239,966
Buildings and improvements............................... 5,793,757 5,711,776
--------- ---------
6,033,723 5,951,742
Less: Accumulated depreciation.......................... (2,585,603) (2,405,420)
--------- ---------
3,448,120 3,546,322
Asset held for sale......................................... - 2,373,130
Cash and cash equivalents ($192,645 and $79,303
restricted by the Bankruptcy Court at September 30,
1995 and December 31, 1994, respectively)................ 271,337 107,815
Cash segregated for security deposits....................... 59,887 76,307
Accounts receivable......................................... 20,674 17,033
Escrow deposits............................................. 56,221 364,419
Prepaid expenses and other assets........................... 8,019 35,382
--------- ---------
$ 3,864,258 $ 6,520,408
========= =========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
- ------------------------------------------
Mortgage notes payable, net of discounts.................... $ 3,794,821 $ 3,814,667
Accounts payable and accrued expenses....................... 90,233 75,624
Accrued property taxes...................................... 22,682 123,773
Payable to affiliates - General Partner..................... 61,840 4,986
Security deposits and deferred rental income................ 57,178 56,348
--------- ----------
4,026,754 4,075,398
--------- ---------
Liabilities subject to compromise (including $37,228
and $1,341,606 payable to affiliates at September 30,
1995 and December 31, 1994, respectively)................ 160,997 4,184,977
--------- ---------
Partners' equity (deficit):
Limited partners - 45,000,000 Units authorized;
16,108,041 and 16,088,041 Units issued and outstanding
at September 30, 1995 and December 31, 1994, respectively,
(9,399,080 and 9,419,080 Current Income Units at
September 30, 1995 and December 31, 1994, respectively
and 6,688,961 Growth/Shelter Units at September 30, 1995
and December 31, 1994)..................................... (5,177,426) (6,579,736)
General Partner.......................................... 4,853,933 4,839,769
--------- ---------
(323,493) (1,739,967)
--------- ---------
$ 3,864,258 $ 6,520,408
========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
McNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
1995 1994 1995 1994
------- -------- --------- ---------
Revenue:
Rental revenue................ $ 335,469 $ 498,090 $1,255,358 $1,416,152
Interest...................... 3,856 1,744 10,109 4,453
Gain on sale of real estate... - - 554,047 -
--------- -------- --------- ---------
Total revenue............... 339,325 499,834 1,819,514 1,420,605
--------- -------- --------- ---------
Expenses:
Interest...................... 92,155 149,281 358,760 457,264
Interest - affiliates......... (6,329) 11,063 17,846 191,451
Depreciation.................. 68,439 95,484 243,923 283,365
Property taxes................ 27,938 52,275 105,674 156,825
Personnel costs............... 51,720 72,929 198,953 218,894
Utilities..................... 20,830 33,586 119,394 136,214
Repairs and maintenance....... 24,404 63,141 168,978 194,588
Property management
fees - affiliates........... 16,084 23,983 56,435 68,548
Other property operating
expenses.................... 44,912 52,446 122,301 164,823
General and administrative.... 9,384 9,532 73,434 23,532
General and administrative -
affiliates.................. 43,914 61,131 136,269 164,928
Reorganization expense........ 29,432 - 199,998 -
Write-down for permanent
impairment of real estate... - - - 661,921
--------- -------- --------- ---------
Total expenses.............. 422,883 624,851 1,801,965 2,722,353
--------- -------- --------- ---------
Income (loss) before
extraordinary item............ $ (83,558) $(125,017) $ 17,549 $(1,301,748)
Extraordinary item............... 1,398,925 - 1,398,925 -
--------- -------- --------- ----------
Net income (loss)................ $1,315,367 $(125,017) $1,416,474 $(1,301,748)
========= ======== ========= ==========
Net income (loss) allocable
to limited partners - Current
Income Unit................... $ 118,383 $ (11,251) $ 127,483 $ (117,157)
Net income (loss) allocable to
limited partners - Growth/
Shelter Unit.................. 1,183,831 (112,515) 1,274,827 (1,171,573)
Net income (loss) allocable to
General Partner............... 13,153 (1,251) 14,164 (13,018)
--------- -------- --------- ---------
Net income (loss)................ $1,315,367 $(125,017) $1,416,474 $(1,301,748)
========= ======== ========= ==========
Net income (loss) per thousand
limited partnership units:
Current Income Units:
Income (loss) before
extraordinary item.......... $ (.81) $ (1.19) $ .16 $ (12.44)
Extraordinary item............ 13.40 - 13.40 -
--------- -------- --------- ----------
Net income (loss)............. $ 12.59 $ (1.19) $ 13.56 $ (12.44)
========= ======== ========= ==========
Growth/Shelter Units:
Income (loss) before
extraordinary item.......... $ (11.24) $ (16.77) $ 2.36 $ (174.63)
Extraordinary item............ 188.23 - 188.23 -
--------- -------- --------- ----------
Net income (loss)............. $ 176.99 $ (16.77) $ 190.59 $ (174.63)
========= ======== ========= ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
For the Nine Months Ended September 30, 1995 and 1994
Total
General Limited Partners'
Partner Partners Equity (Deficit)
--------- ----------- ---------------
Balance at December 31, 1993.............. $ (225,716) $(5,128,564) $(5,354,280)
Contribution of advances purchased
by General Partner and accrued
interest............................... 5,080,143 - 5,080,143
Net loss
General Partner........................ (13,018) - (13,018)
Current Income Units................... - (117,157) (117,157)
Growth/Shelter Units................... - (1,171,573) (1,171,573)
--------- ---------- ----------
Total net loss............................ (13,018) (1,288,730) (1,301,748)
--------- ---------- ----------
Balance at September 30, 1994............. $4,841,409 $(6,417,294) $(1,575,885)
========= ========== ==========
Balance at December 31, 1994.............. $4,839,769 $(6,579,736) $(1,739,967)
Net income
General Partner........................ 14,164 - 14,164
Current Income Units................... - 127,483 127,483
Growth/Shelter Units................... - 1,274,827 1,274,827
--------- ---------- ---------
Total net income.......................... 14,164 1,402,310 1,416,474
--------- ---------- ---------
Balance at September 30, 1995............. $4,853,933 $(5,177,426) $ (323,493)
========= ========== ==========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Increase in Cash and Cash Equivalents
Nine Months Ended
September 30,
---------------------------------
1995 1994
--------- ----------
Cash flows from operating activities:
Cash received from tenants........................ $1,241,767 $1,383,157
Cash paid to suppliers............................ (770,773) (679,382)
Cash paid to affiliates........................... (59,149) (81,561)
Interest received................................. 10,109 4,453
Interest paid..................................... (351,902) (384,330)
Property taxes escrowed........................... (96,639) (131,721)
--------- ---------
Net cash provided by (used in)
operating activities.............................. (26,587) 110,616
--------- ---------
Cash flows from investing activities:
Additions to real estate investments.............. (81,981) (62,113)
Proceeds from sale of real estate................. 319,672 -
--------- ---------
Net cash provided by (used in)
investing activities.............................. 237,691 (62,113)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage notes
payable......................................... (47,582) (63,004)
Advances from affiliates - General Partner........ - 57,904
--------- ---------
Net cash used in financing activities................ (47,582) (5,100)
--------- ---------
Net increase in cash and cash equivalents............ 163,522 43,403
Cash and cash equivalents at beginning of
period............................................ 107,815 89,311
--------- ---------
Cash and cash equivalents at end of period........... $ 271,337 $ 132,714
========= =========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XXIII, L.P.
STATEMENTS OF CASH FLOWS
(Unaudited)
Reconciliation of Net Income (Loss) to Net Cash Provided by (Used in)
Operating Activities
Nine Months Ended
September 30,
---------------------------------
1995 1994
--------- ----------
Net income (loss).................................... $1,416,474 $(1,301,748)
--------- ----------
Adjustments to reconcile net income (loss) to net
cash provided by (used in)operating activities:
Depreciation...................................... 243,923 283,365
Amortization of discounts on mortgage
notes payable................................... 19,845 24,976
Interest added to advances from affiliates -
General Partner................................. 17,846 191,451
Gain on sale of real estate....................... (554,047) -
Write-down for permanent impairment
of real estate.................................. - 661,921
Extraordinary item................................ (1,398,925) -
Changes in assets and liabilities:
Cash segregated for security deposits........... 16,420 (16,251)
Accounts receivable............................. (3,641) 13,967
Escrow deposits................................. 308,198 69,904
Prepaid expenses and other assets............... 27,363 (7,501)
Accounts payable and accrued expenses........... (1,227) 5,744
Accrued property taxes.......................... (118,699) 26,156
Claims settlement payable....................... (113,162) 5,226
Payable to affiliates - General Partner......... 133,555 151,915
Security deposits and deferred rental
income........................................ (20,510) 1,491
---------- ---------
Total adjustments............................. (1,443,061) 1,412,364
---------- ---------
Net cash provided by (used in)
operating activities.............................. $ (26,587) $ 110,616
========== =========
The financial information included herein has been prepared by management
without audit by independent public accountants.
See accompanying notes to financial statements.
MCNEIL REAL ESTATE FUND XXIII, L.P.
Notes to Financial Statements
(Unaudited)
September 30, 1995
NOTE 1.
- ------
McNeil Real Estate Fund XXIII, L.P., (the "Partnership"), formerly known as
Southmark Realty Partners III, Ltd. was organized on March 4, 1985 as a limited
partnership under the provisions of the California Revised Limited Partnership
Act to acquire and operate residential properties. The general partner of the
Partnership is McNeil Partners, L.P. (the "General Partner"), a Delaware limited
partnership, an affiliate of Robert A. McNeil ("McNeil"). The principal place of
business for the Partnership and the General Partner is 13760 Noel Road, Suite
700, LB70, Dallas, Texas 75240.
In the opinion of management, the financial statements reflect all adjustments
necessary for a fair presentation of the Partnership's financial position and
results of operations. All adjustments were of a normal recurring nature.
However, the results of operations for the nine months ended September 30, 1995
are not necessarily indicative of the results to be expected for the year ending
December 31, 1995.
NOTE 2.
- ------
The financial statements should be read in conjunction with the financial
statements contained in the Partnership's Annual Report on Form 10-K for the
year ended December 31, 1994, and the notes thereto, as filed with the
Securities and Exchange Commission, which is available upon request by writing
to McNeil Real Estate XXIII, L.P., c/o McNeil Real Estate Management, Inc.,
Investor Services, 13760 Noel Road, Suite 700, LB70, Dallas, Texas 75240.
NOTE 3.
- ------
As discussed in Note 5, the Partnership filed a Voluntary Petition for
reorganization under Chapter 11 of the United States Bankruptcy Court in June
1994. The Partnership's First Amended Plan of Reorganization (the
"Reorganization Plan") was filed with the Bankruptcy Court on February 13, 1995,
and the Partnership's Disclosure Statement of Debtor-in-Possession (the
"Disclosure Statement") was approved by the Bankruptcy Court on February 14,
1995. The Partnership operated in this Chapter 11 proceeding as a
debtor-in-possession. Accordingly, the General Partner continued to manage the
business and affairs of the Partnership subject to the jurisdiction and
supervision of the United States Bankruptcy Court - Northern District of Texas
(the "Bankruptcy Court"). On May 24, 1995 (the "Confirmation Date"), the
Partnership received an order confirming its Reorganization Plan and is
currently in the process of settling the remaining liabilities.
Under the bankruptcy proceedings, certain liabilities had priority and the
payment of certain other liabilities existing at June 30, 1994, were deferred.
Such liabilities have been set forth separately in the financial statements.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. The Partnership has suffered
recurring losses from operations and has relied on advances from affiliates to
meet its debt obligations and to fund capital improvements. There is no
guarantee that such advances will continue to be available. These conditions
raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
NOTE 4.
- ------
The Partnership pays property management fees equal to 5% of the gross rental
receipts for its residential properties to McNeil Real Estate Management, Inc.
("McREMI"), an affiliate of the General Partner, for providing property
management and leasing services. Due to the bankruptcy proceedings, the property
management fees paid by Woodbridge Apartments were reduced to 3% beginning
December 1, 1994.
The Partnership reimburses McREMI for its costs, including overhead, of
administering the Partnership's affairs.
The Partnership is incurring an asset management fee which is payable to the
General Partner. Through 1999, the asset management fee is calculated as 1% of
the Partnership's tangible asset value. Tangible asset value is determined by
using the greater of (i) an amount calculated by applying a capitalization rate
of 9% to the annualized net operating income of each property or (ii) a value of
$10,000 per apartment unit to arrive at the property tangible asset value. The
property tangible asset value is then added to the book value of all other
assets excluding intangible items. The fee percentage decreases subsequent to
1999. As discussed in Note 5, asset management fees totaling $366,329 accrued
prior to the Confirmation Date were discharged. Total accrued but unpaid asset
management fees subsequent to the Confirmation Date of $25,052 were outstanding
at September 30, 1995.
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. There is no assurance that
the Partnership will receive any additional funds under the facility because no
amounts have been reserved for any particular partnership. As of September 30,
1995, $2,362,004 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings.
The General Partner has, in its discretion, advanced funds to the Partnership to
meet its working capital requirements. These advances, which are unsecured and
due on demand, accrue interest at a rate equal to the prime lending rate plus
1%.
McNeil Real Estate Fund XXV, L.P., an affiliate which owns a phase of Harbour
Club Apartments, has advanced funds to the Partnership for working capital
requirements. The advance, which is unsecured and due on demand, accrues
interest at a rate equal to the prime lending rate plus 1%.
The total advances from affiliates at September 30, 1995 and December 31, 1994
consist of the following:
September 30, December 31,
1995 1994
------- --------
Advances from General Partner- revolving
credit facility..................................... $ - $ 65,670
Advances from General Partner - other................... - 281,823
Advance from McNeil Real Estate Fund XXV, L.P........... - 113,000
Accrued interest payable................................ 37,228 70,583
------- -------
$ 37,228 $531,076
======= =======
Compensation and reimbursements paid to or accrued for the benefit of the
General Partner and its affiliates are as follows:
Nine Months Ended
September 30,
-------------------------------
1995 1994
------- -------
Property management fees............................... $ 56,435 $ 68,548
Charged to interest - affiliates:
Interest on advances from affiliates - General
Partner........................................... 17,846 191,451
Charged to general and administrative -
affiliates:
Partnership administration.......................... 79,902 109,189
Asset management fee................................ 56,367 55,739
------- -------
$210,550 $424,927
======= =======
The payable to affiliates - General Partner at September 30, 1995 and December
31, 1994 consisted primarily of unpaid asset management fees, property
management fees and partnership general and administrative expenses.
As discussed in Note 5, Advances from affiliates - General Partner and a portion
of Payable to affiliates - General Partner were classified as unsecured claims
and are deferred under the Chapter 11 proceedings. As outlined in the
Reorganization Plan, any payments of advances and fees owed to affiliates of the
General Partner is limited to remaining cash after the pre-petition and
reorganization related payables have been paid. At September 30, 1995, the
Partnership had $37,228 of such cash available to distribute to affiliate
creditors. The remaining amounts owed to affiliates of the General Partner at
Confirmation Date were discharged.
NOTE 5.
- ------
One of the Partnership's properties, Woodbridge Apartments, was encumbered by
two mortgage notes payable. The first lien mortgage note payable was co-insured
by the Federal Housing Administration and was, therefore, regulated by the
Department of Housing and Urban Development ("HUD"). The second lien mortgage
note payable, in the amount of $982,260, was payable in monthly installments of
interest only and payments were limited to "surplus cash", as defined by HUD,
and as calculated at June 30 and December 31 of each year. No "surplus cash" had
been available to make the interest payments on the second lien and therefore,
the Partnership ceased making such payments in April 1994. The Partnership was
unsuccessful in attempting to negotiate a restructuring of the mortgage and the
second lienholder was expected to initiate foreclosure proceedings. In an effort
to prevent the loss of the property, the Partnership filed a Voluntary Petition
for Reorganization under Chapter 11 of the United States Bankruptcy Court,
Northern District of Texas on June 30, 1994.
Concurrent with the filing of the Voluntary Petition for reorganization, the
General Partner contributed to the Partnership the purchased advances of
$4,375,661 plus accrued interest of $704,482 owing to the General Partner from
the Partnership.
As a result of its Chapter 11 proceeding, the realization of assets and
liquidation of liabilities attributable to the Partnership were subject to
significant uncertainties. The Partnership's financial statements include
adjustments and reclassifications to reflect the liabilities that were deferred
under the Chapter 11 proceeding as "Liabilities subject to compromise."
The Partnership's First Amended Plan of Reorganization (the "Reorganization
Plan") was filed with the Bankruptcy Court on February 13, 1995, and the
Partnership's Disclosure Statement of Debtor-in-Possession (the "Disclosure
Statement") was approved by the Bankruptcy Court on February 14, 1995.
The Partnership's Reorganization Plan and Disclosure Statement were submitted
February 20, 1995 to a vote of the impaired creditors, as defined. The impaired
creditors included a class of creditors who had filed a judgment lien against
Woodbridge Apartments in connection with the Illinois rescission suit (See Note
7). The judgment lien creditors filed objections to confirmation of the
Reorganization Plan. On April 12, 1995, the Bankruptcy Court did grant the order
to sell Woodbridge Apartments but denied confirmation of the Reorganization
Plan. The Partnership filed an appeal of the Court's ruling and, in the
meantime, attempted to settle the matter with the judgment lien creditors, which
would allow for confirmation of the Reorganization Plan. On May 10, 1995, the
Reorganization Plan was amended to provide for full payment to the judgment lien
creditors. The Reorganization Plan, as amended, was subsequently confirmed by
the Bankruptcy Court on May 24, 1995.
Woodbridge Apartments was sold on May 25, 1995 and, in accordance with the
Reorganization Plan, the first and second mortgage notes and the related
outstanding accrued interest were paid. The Partnership also utilized $156,566
of the proceeds from the sale to pay the settlement and legal fees to the
judgment lien creditors, as discussed above.
On September 11, 1995, the Bankruptcy Court issued an Order Regarding Objections
to Claims that allowed the Partnership to pay outstanding pre-petition claims
totaling approximately $124,000 in October 1995.
On September 14, 1995, the Partnership sent an election form for each limited
partner to choose whether to redeem their interest in the Partnership. The
redemption price is 1/1000th of a cent per Unit. The limited partners were
required to respond within 30 days, and at the close of the thirty day period,
321 limited partners had elected to redeem 4,435,311 of the units. The
Partnership is currently attempting to obtain a "no-action" letter from the
Securities and Exchange Commission ("SEC"). The "no-action" letter shall, at a
minimum, provide (1) that the purchase of partnership interests can be
accomplished without compliance with Rule 13e-3 of the Securities Exchange Act
of 1934 and (2) that the SEC has not been advised by the Division of the SEC
issuing the letter to pursue an enforcement action if the Reorganization Plan is
consummated. In the event that a "no-action" letter satisfactory to the
Partnership is not issued by the SEC, or the General Partner of the Partnership
determines that the level of redemption could potentially result in the
treatment of the Partnership as a corporation for tax purposes, then this
provision shall be void and the limited partners will retain their interests.
The SEC is expected to respond to the Partnership's request on or before
December 22, 1995.
At September 30, 1995, the Partnership held $37,228 of cash available to
distribute to the affiliate creditors. The remaining amounts owed to affiliates
were discharged resulting in an extraordinary gain of $1,398,925.
The Partnership's financial statements include the accounts of Beckley
Associates Limited Partnership. Beckley Associates, which owns Harbour Club II
Apartments, and is wholly-owned by the Partnership and the General Partner.
Beckley Associates was not included in the bankruptcy filing. Summarized below
is a statement of assets, liabilities and partners' deficit of the portion of
the Partnership included in the Chapter 11 reorganization as of September 30,
1995, and the results of operations for the nine months ended September 30,
1995, prepared on a going concern basis. The assets, liabilities and
transactions of Beckley Associates have been excluded.
September 30, December 31,
1995 1994
------------ -----------
ASSETS
------
Asset held for sale............................ $ - $2,373,130
Cash and cash equivalents...................... 192,645 79,303
Cash segregated for security deposits.......... - 24,059
Accounts receivable............................ - 2,642
Escrow deposits................................ - 178,078
Prepaid expenses and other assets.............. - 26,024
------- ---------
$192,645 $2,683,236
======= =========
LIABILITIES AND PARTNERS' DEFICIT
---------------------------------
Mortgage notes payable, net of discounts....... $ - $2,434,653
Accounts payable and accrued expenses.......... 146,782 256,608
Accrued property taxes......................... - 17,608
Claims settlement payable...................... - 113,162
Payable to affiliates - General Partner........ 56,527 810,530
Advances from affiliates - General Partner..... 37,228 531,076
Security deposits and deferred
rental income................................ - 21,340
------- ---------
240,537 4,184,977
------- ---------
Partners' deficit.............................. (47,892) (1,501,741)
------- ----------
$192,645 $ 2,683,236
======= ==========
For the period
June 30, 1994
Nine months ended through
September 30, 1995 September 30, 1994
Rental revenue................................. $ 278,894 $ 188,235
Interest....................................... 6,557 1,071
Gain on sale of real estate.................... 554,047 -
--------- -
Total revenues............................... 839,498 189,306
--------- --------
Interest....................................... 81,695 59,188
Interest - affiliates.......................... 17,846 11,063
Depreciation................................... 63,740 38,764
Property taxes................................. 10,121 9,423
Personnel costs................................ 55,695 30,702
Utilities...................................... 34,321 14,853
Repairs and maintenance........................ 52,898 21,726
Property management fees - affiliates.......... 8,735 9,092
Other property operating....................... 49,850 21,302
General and administrative..................... 73,406 11,703
General and administrative - affiliates........ 136,269 90,896
Reorganization expense......................... 199,998 -
--------- -
Total expenses............................... 784,574 318,712
--------- --------
Income (loss) before extraordinary item........ 54,924 (129,406)
Extraordinary item............................. 1,398,925 -
--------- -
Net income (loss).............................. $1,453,849 $(129,406)
========= ========
NOTE 6.
- ------
On May 25, 1995, Woodbridge Apartments was sold to an unrelated third party for
a cash price of $3,200,000. Cash proceeds and the gain on the disposition is
detailed below:
Gain on Sale Cash Proceeds
---------- -----------
Sales Price.......................................... $3,200,000 $3,200,000
Selling costs........................................ (121,904) (121,904)
Retirement of mortgage discounts..................... (214,659)
Carrying value....................................... (2,309,390)
---------
Gain on disposition of real estate................... $ 554,047
=========
Retirement of mortgage notes......................... (2,641,421)
Payment of accrued interest.......................... (117,003)
----------
Net cash proceeds.................................... $ 319,672
==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- ------ ---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
The Partnership had net income of $1,315,367 and $1,416,474 for the three and
nine months ended September 30, 1995, respectively, as compared to net losses of
$125,017 and $1,301,748 for the same periods of 1994. The Partnership recorded a
$1,398,925 extraordinary gain for the discharge of affiliate fees and advances
related to the Chapter 11 proceedings during the third quarter of 1995 (see Item
1 - Note 4 and Note 5).
The Partnership ceased making the interest only payments on the second lien on
the Woodbridge Apartments in April 1994 which constituted a default under the
mortgage agreement. The Partnership was unsuccessful in attempting to negotiate
a restructuring of the mortgage, and the second lienholder was expected to
initiate foreclosure proceedings. Accordingly, the Partnership recorded a
write-down for permanent impairment of real estate of $661,921 on Woodbridge
Apartments during the first quarter of 1994, to write down the property to its
estimated net realizable value. In an effort to prevent the loss of the
property, the Partnership filed a Voluntary Petition for Reorganization under
Chapter 11 in the United States Bankruptcy Court, Northern District of Texas on
June 30, 1994. In January 1995, the Partnership received an offer to buy the
property from an unaffiliated third party for a purchase price that was higher
than its book value, after the write-down. The sale closed on May 25, 1995, and
the Partnership recorded a gain on the sale of $554,047. The Partnership
recorded $839,773 of revenue and $351,857 of expense related to Woodbridge
Apartments during the first nine months of 1995.
Harbour Club II is part of a four-phase apartment complex located in Belleville,
Michigan. Phases I and III of the complex are owned by partnerships in which
McNeil Partners, L.P. is the general partner; while Phase IV is owned by
University Real Estate Fund 12, Ltd., ("UREF 12"). McREMI had been managing all
four phases of the complex until December 1992, when the property management
agreement between McREMI and UREF 12 was canceled. Additionally, in January
1993, Phase I defaulted on the mortgage loan to HUD and unless a refinancing
agreement can be reached with the lender, the property is subject to
foreclosure. If Phase I is lost to foreclosure, it would be extremely difficult
to operate Phases II and III because the pool and clubhouse are located in Phase
I.
Harbour Club II had an improved average occupancy of 92% for the first nine
months of 1995 as compared to an average occupancy of 88% for the same period of
1994. Harbour Club II was able to provide enough cash flow from operations to
meet ordinary operating expenses as well as the debt service for its related
mortgage during the first nine months of 1995; however, the property is in need
of major capital repairs and improvements in order to compete in its local
market. The Partnership is seeking alternatives to fund the necessary
improvements, but at this time no sources have been found.
RESULTS OF OPERATIONS
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Revenue:
Rental revenue decreased $162,621 and $160,794 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994
primarily due to the sale of Woodbridge Apartments on May 25, 1995. The
Partnership recorded a $554,047 gain from the sale of Woodbridge Apartments.
Expenses:
Total expenses decreased $201,968 and $920,388 for the three and nine months
ended September 30, 1995, respectively, as compared to the same periods of 1994.
The 1994 expenses include a $661,921 write-down for permanent impairment of real
estate related to Woodbridge Apartments. As previously discussed, Woodbridge
Apartments was sold on May 25, 1995; therefore the 1995 expenses include only
five months of activity related to Woodbridge.
Interest - affiliates decreased $17,392 and $173,605 for the three and nine
months ended September 30, 1995, respectively, as compared to the same periods
of 1994. The decrease was due to the decrease in the balance of purchased
advances which were contributed to the Partnership in June 1994 by the General
Partner. Additionally, in accordance with the Reorganization Plan, advances due
to the General Partner were discharged. The third quarter of 1995 includes an
adjustment related to this settlement.
Property taxes decreased $24,337 and $51,151 for the three and nine months ended
September 30, 1995, respectively, primarily due to reduced tax expense at
Harbour Club II Apartments that resulted from a successful tax appeal. The
remaining decrease is due to the sale of Woodbridge Apartments.
Repairs and maintenance expense decreased $38,737 and $25,610 for the three and
nine months ended September 30, 1995, respectively, as compared to the same
periods of 1994 due to a decrease in carpet and appliance replacements at
Harbour Club II. The remaining decrease is due to the sale of Woodbridge
Apartments.
Other property operating expense decreased $7,534 and $42,522 for the three and
nine months ended September 30, 1995, as compared to the same periods of 1994
primarily due to a decrease in legal and bad debt expense at Harbour Club II
Apartments that has resulted from the improved economic conditions in
Belleville, Michigan, where the property is located.
General and administrative expense decreased $148 and increased $49,902 for the
three and nine months ended September 30, 1995, as compared to the same period
of 1994. During the second quarter of 1995, the Partnership incurred $41,136 for
legal fees related to the settlement of the judgment lien rendered in connection
with the Illinois rescission suit (see Item 1 - Note 2 and Note 7). No such fees
were incurred during 1994. The remaining increase is primarily due to higher
audit fees.
The Partnership incurred $29,432 and $199,998 of reorganization expense during
the three and nine months ended September 30, 1995, respectively, for legal and
professional fees related to the Partnership's bankruptcy proceeding. No such
expenses were incurred in 1994.
LIQUIDITY AND CAPITAL RESOURCES
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The Partnership used $26,587 of cash flow from operations for the nine months
ended September 30, 1995 as compared to cash provided by operations of $110,616
for the same period of 1994. Cash received from tenants, interest paid and
property taxes escrowed decreased primarily due to the sale of Woodbridge
Apartments. Cash paid to suppliers increased due to reorganization costs
relating to the pending bankruptcy proceedings. During 1994, the Partnership
paid approximately $13,000 of property management fees accrued in the prior year
for Harbour Club II Apartments. The remaining decrease in cash paid to
affiliates is due to the sale of Woodbridge Apartments.
The minimal cash balances of the Partnership have continued to limit capital
improvements. Additions to real estate totaled $81,981 for the first nine months
of 1995 as compared to $62,113 for the same period of 1994. The Partnership
received $319,672 of proceeds from the sale of Woodbridge Apartments. The use of
these proceeds is restricted by the Bankruptcy Court.
During the first nine months of 1994, the Partnership received $57,904 of
advances from affiliates of the General Partner to fund operating cash
shortfalls. The Partnership has received no such advances during the first nine
months of 1995.
At September 30, 1995, the Partnership held cash and cash equivalents of
$271,337, of which $192,645 was in segregated accounts which have been
restricted by the Bankruptcy Court, and accordingly was not available for
general use by the Partnership.
Short-term liquidity
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As previously discussed in Item 1 - Note 5, the Partnership was operating under
Chapter 11 proceedings as a debtor-in-possession. On May 25, 1995, in accordance
with the Reorganization Plan, the Partnership sold Woodbridge Apartments. A
portion of the net proceeds from the sale of the property were used to pay the
settlement and related legal fees of the judgment lien creditors. In September
1995, the Partnership received an Order Regarding Objections to Claims and a
Final Resolution of Fees & Expenses which allowed the Partnership to distribute
funds to the remaining creditors as outlined in the Reorganization Plan in
October 1995.
The General Partner has established a revolving credit facility not to exceed
$5,000,000 in the aggregate which is available on a "first-come, first-served"
basis to the Partnership and other affiliated partnerships if certain conditions
are met. Borrowings under the facility may be used to fund deferred maintenance,
refinancing obligations and working capital needs. There is no assurance that
the Partnership will receive any additional funds under the facility because no
amounts have been reserved for any particular partnership. As of September 30,
1995, $2,362,004 remained available for borrowing under the facility; however,
additional funds could become available as other partnerships repay existing
borrowings. Additionally, the General Partner has, at its discretion, advanced
funds to the Partnership in addition to the revolving credit facility. The
General Partner is not obligated to advance funds to the Partnership and there
is no assurance that the Partnership will receive additional funds.
The balance of cash and cash equivalents can be considered no more than a
minimum level of cash reserves for the properties operations. For the rest of
1995, operations of Harbour Club II Apartments is expected to provide sufficient
positive cash flow for normal operating expenses and debt service payments.
However, any needed capital improvements will require the use of existing cash
reserves or other sources of cash. No such sources have been identified. The
Partnership has no established lines of credit from outside sources. Although
affiliates of the Partnership have previously funded such cash deficits, there
can be no assurance that the Partnership will receive additional funds Other
possible actions to resolve cash deficiencies include refinancings, deferring
capital expenditures on the Partnership property except where improvements are
expected to enhance the competitiveness and marketability of the property, or
property sale. A sale or refinancing of the property is only a possibility.
Long-term liquidity
- -------------------
The Partnership has been in a distressed cash situation for several years. After
the sale of Woodbridge Apartments, the Partnership has one remaining property,
Harbour Club II Apartments. Although Harbour Club II is able to operate in such
a manner to provide for operating expenses and debt service payments, the
property has not proven the capability to produce the cash flow necessary for
capital improvements nor to support Partnership general and administrative
operations. The inability to make necessary capital improvements has led to
deteriorating conditions at the property. In the opinion of management, if
capital improvements are not made to make the property more marketable, the net
realizable value of the property may be further impaired.
These conditions raise substantial doubt about the Partnership's ability to
continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
Distributions
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To maintain adequate cash balances of the Partnership, distributions to Current
Income Unit holders were suspended in 1988. There have been no distribution to
Growth/Shelter Units holders. Distributions to Unit holders will remain
suspended for the foreseeable future.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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1) Robert and Jeanette Kotowski, et al, v. Southmark Realty Partners III, Ltd.
(presently known as McNeil Real Estate Fund XXIII, L.P.) and Southmark
Investment Group 85, Inc. The plaintiffs sought rescission, pursuant to the
Illinois Securities Act, of principal invested in McNeil Real Estate Fund XXIII,
L.P. and other relief including damages for breach of fiduciary duty and
violation of the Illinois Consumer Fraud and Deceptive Business Practices Act.
The defendants filed an answer denying all of the allegations set forth in the
plaintiff's complaint. The defendants filed a motion to dismiss the case, and
two out of the three counts were dismissed. The remaining count was limited to
the plaintiffs who purchased the securities within three years of the date the
suit was filed. In this regard, the Partnership agreed to rescind 76,000 Units
and settled claims totaling $116,374. The claims consisted of the $76,000
original purchase price of the units plus $51,395 interest less distributions of
$11,021 previously paid. The $64,979 original purchase price net of
distributions paid was charged to limited partners' deficit in 1991 and accrued
interest was charged to interest expense in 1993, 1992 and 1991. On September
15, 1992, the Partnership entered into an agreement with the plaintiffs whereby
the Partnership agreed to pay the settled claims over 60 months at an interest
rate of 8%, and pursuant to terms and conditions as outlined in the agreement.
The Partnership made the first two payments due under the agreement; however,
the October 1993 installment and both installments due during 1994 were not made
due to the lack of funds available to the Partnership. An appeal had been filed
by the plaintiffs who lost on the two dismissed counts. On November 30, 1992,
the Court dismissed all but $116,374 of claims that had previously been agreed
to by the Partnership. The plaintiffs presented, on February 3, 1995, their
motion to file an amended consolidated class action complaint and, on February
15, 1995, their motion to certify a class. The Partnership's Reorganization Plan
and Disclosure Statement were submitted February 20, 1995 to a vote of the
impaired creditors, as defined. The plaintiffs filed objections to confirmation
of the Partnership's First Amended Plan of Reorganization. On April 12, 1995,
the Bankruptcy Court did grant the order to sell Woodbridge Apartments but
denied confirmation of the Reorganization Plan. The Partnership filed an appeal
of the Court's ruling and, in the meantime, attempted to settle the matter with
the plaintiffs, which would allow for confirmation of the Reorganization Plan.
On May 10, 1995, the Reorganization Plan was amended to provide for full payment
to the plaintiffs, including legal costs. The Reorganization Plan, as amended,
was subsequently confirmed by the Bankruptcy Court on May 24, 1995 and on June
2, 1995 the Partnership paid $156,566 to the plaintiffs.
2) Martha Hess, et. al. v. Southmark Equity Partners II, Ltd., Southmark Income
Investors, Ltd., Southmark Equity Partners, Ltd., Southmark Realty Partners III,
Ltd. (presently known as McNeil Real Estate Fund XXIII, L.P.), and Southmark
Realty Partners II, Ltd., et al. ("Hess"); Kotowski v. Southmark Equity
Partners, Ltd. and Donald Arceri v. Southmark Income Investors, Ltd. These cases
were previously pending in the Illinois Appellate Court for the First District
("Appellate Court"), as consolidated case no. 90-107. Consolidated with these
cases are an additional 14 matters against unrelated partnership entities. The
Hess case was filed on May 20, 1988, by Martha Hess, individually and on behalf
of a putative class of those similarly situated. The original, first, second and
third amended complaints in Hess sought rescission, pursuant to the Illinois
Securities Act, of over $2.7 million of principal invested in five Southmark
(now McNeil) partnerships, and other relief including damages for breach of
fiduciary duty and violation of the Illinois Consumer Fraud and Deceptive
Business Practices Act. The original, first, second and third amended complaints
in Hess were dismissed against the defendant-group because the Appellate Court
held that they were not the proper subject of a class action complaint. Hess
was, thereafter, amended a fourth time to state causes of action against
unrelated partnership entities. Hess went to judgment against that unrelated
entity and the judgment, along with the prior dismissal of the class action, was
appealed. The Hess appeal was decided by the Appellate Court during 1992. The
Appellate Court affirmed the dismissal of the breach of fiduciary duty and
consumer fraud claims. The Appellate Court did, however, reverse in part,
holding that certain putative class members could file class action complaints
against the defendant-group. Although leave to appeal to the Illinois Supreme
Court was sought, the Illinois Supreme Court refused to hear the appeal.
Proceedings against the Partnership were stayed pursuant to the voluntary
petition for reorganization filed by the Partnership on June 30, 1994.
Plaintiffs have agreed that all claims against the Partnership have been fully
satisfied in the bankruptcy. They have agreed to dismiss those claims with
prejudice.
ITEM 2. CHANGES IN SECURITIES
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In accordance with the Partnership's Reorganization Plan, on September 14, 1995,
the Partnership sent an election form for each limited partner to choose whether
to redeem their interest in the Partnership. The redemption price is 1/1000th of
a cent per Unit. The limited partners were required to respond within 30 days,
and at the close of the thirty day period, 321 limited partners had elected to
redeem 4,435,311 of the units. The Partnership is currently attempting to obtain
a "no-action" letter from the Securities and Exchange Commission ("SEC"). The
"no-action" letter shall, at a minimum, provide (1) that the purchase of
partnership interests can be accomplished without compliance with Rule 13e-3 of
the Securities Exchange Act of 1934 and (2) that the SEC has not been advised by
the Division of the SEC issuing the letter to pursue an enforcement action if
the Reorganization Plan is consummated. In the event that a "no-action" letter
satisfactory to the Partnership is not issued by the SEC, or the General Partner
of the Partnership determines that the level of redemption could potentially
result in the treatment of the Partnership as a corporation for tax purposes,
then this provision shall be void and the limited partners will retain their
interests. The SEC is expected to respond to the Partnership's request on or
before December 22, 1995.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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(a) Exhibits.
Exhibit
Number Description
4. Amended and Restated Limited Partnership Agreement dated March 30, 1992.
(Incorporated by reference to the Current Report of the Registrant on Form 8-K
dated March 30, 1992, as filed on April 10, 1992).
11. Statement regarding computation of Net Income (Loss) per Thousand Limited
Partnership Units: Net income (loss) per thousand limited partner units is
computed by dividing net income (loss) allocated to the limited partners by
the weighted average number of limited partnership units outstanding expressed
in thousands. Per unit information has been computed based on 9,399 and 9,419
Current Income Units (in thousands) outstanding in 1995 and 1994 and 6,689 and
6,709 Growth/Shelter Units (in thousands) outstanding in 1995 and 1994,
respectively.
b) Reports on Form 8-K. There were no reports on Form 8-K filed during
the quarter ended September 30, 1995.
MCNEIL REAL ESTATE FUND XXIII, L.P.
(Debtor-in-Possession)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:
McNEIL REAL ESTATE FUND XXIII, L.P.
By: McNeil Partners, L.P., General Partner
By: McNeil Investors, Inc., General Partner
November 14 , 1995 By: /s/ Donald K. Reed
- ----------------------------------- ---------------------------------------
Date Donald K. Reed
President and Chief Executive Officer
November 14, 1995 By: /s/ Robert C. Irvine
- ----------------------------------- ---------------------------------------
Date Robert C. Irvine
Chief Financial Officer of McNeil Investors, Inc.
Principal Financial Officer
November 14, 1995 By: /s/ Carol A. Fahs
- ----------------------------------- ---------------------------------------
Date Carol A. Fahs
Chief Accounting Officer of McNeil Real Estate
Management, Inc.